Thursday, April 5, 2018

A Letter from Bob Lyons

“[Bob Lyons] was
recently asked, ‘who pays for our pensions; where does the money come from?’
[Lyons] asked Kathleen Farney, the research analyst of the Teachers Retirement System of Illinois, for the calculation of the past 20 years.

“Over the past 20
years, the percentage from investment earned is 46%; the percentage from the state's contribution is 35%; the percentage from the
contributions of active teachers is 17%; the percentage from school districts is
two percent.

“For most of
those 20 years, active teachers have contributed 9.4% of their salary, but now
it is reduced to 9.0% after the early retirement option ended. Individual
school districts contributed .58% of teachers' salary and 10.1% for federally-paid
teachers.

“The goal for the
state's contributions is the one established by the state in 1995; the state was
supposed to contribute enough money over 50 years so that in 2045 the five
state pensions (TRS, SURS, SERS, GARS, and JRS) would be 90% funded.

“Ideally, that
would have called for 50 years of equal payments, but the subsequent annual
payments would have been more expensive than the legislators were willing to pay,
despite being the least expensive option for the total 50 years.

“Instead, the
state used a 15-year ramp to gradually increase the payments, with balloon
payments in each of the last five years from 2040 to 2045. Of course, the
state had a partial pension holiday in ‘06 and ‘07, and the state also lowered
the expected rate of return [and TRS had to retroactively
‘smooth’ the fiscal effect of any changes made in the assumed rate of
investment return over a period of five years. The ‘smoothing’ applied to any assumption
changes from 2012].

“This year the
state is paying more than $4 billion into TRS, though it really should be over
$6 billion, but since more than 25% of this year’s state budget is going
into the pensions, the state cannot afford to do what is actuarially
necessary.

“If TRS was
currently funded at 100%, the necessary ‘normal cost’ to fund the current
active teachers would be just over $1 billion. Three-fourths of what
the state pays TRS is what they owe. Furthermore, no actuarial study
was done in 1989 when the state made the decision to change a three percent simple
COLA to a three percent compounded COLA.

“The COLA is our
most significant benefit, and no one was asked to pay for it: not teachers, not
school districts, or the state were required to increase their payments to pay
for the benefit.

“The old joke
that a legislator can only look as far as the next election is more accurate
than it is funny. If the State of Illinois had paid for our pensions as we had
earned them, it would have cost them less money, and even more of our pensions
would be coming from the profits of the TRS’ investments.”

“Please remember that this is not
official. I cannot speak for the TRS board when I was on it, and I
certainly cannot speak for it when I am no longer on the board—Bob Lyons.”

Teacher/Poet/Musician

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Persona

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